NAIFA Blog

NAIFA's Terry Headley: Dodd-Frank Hits Main Street

NAIFA Past President Terry Headley

The federal Dodd-Frank financial reform law has broad implications affecting insurance and financial advisors and their clients across the country, NAIFA Immediate Past President Terry Headley told the Minnesota House of Representative Commerce and Regulatory Reform Committee during a Feb. 15 hearing.

Click to listen to Terry Headley's testimony

“NAIFA members are community-based, independent business owners,” said Mr. Headley. “They serve the middle-income market. … Our members are clearly Main Street and not Wall Street.”

“The target (of Dodd-Frank) was really Wall Street, but unfortunately the collateral damage has been on Main Street,” he continued. “The law of unintended consequences is fully at work here.”

Specifically, Mr. Headley told the legislators that, if not done properly, the Securities and Exchange Commission’s forthcoming fiduciary rule, which comes under the auspices of Dodd-Frank, could threaten to disenfranchise middle-market investors by increasing the cost, liability and regulatory burden of the advisors who serve them. NAIFA has been working diligently to ensure that the final SEC rule protects the business model of advisors who serve middle-market investors.

Headley also said that NAIFA is watching to ensure that “regulatory creep” associated with the Federal Insurance Office and Consumer Financial Protection Bureau, both created under Dodd-Frank, does not threaten the state-based regulation of insurance that has served consumers well for decades.

Mr. Headley finally commended the Minnesota legislature for passing the North American Securities Administrators Association model act and the National Association of Insurance Commissioners’ model on senior designations for financial advisors.

He urged the legislators to adopt the NAIC model on annuities suitability, and answered several questions on annuities and the model. Following Mr. Headley’s testimony, the Committee voted unanimously in favor of the NAIC model, which now goes on to consideration by the full House.

•   Headley PowerPoint Presentation

 

NAIFA's Diane Boyle Discusses New Senate Bill to Address Harm Being Done by the MLR Rule

In a podcast produced by Employee Benefit Adviser magazine, NAIFA Vice President of Federal Government Relations Diane Boyle discusses S. 2068, a Senate bill that would change the way agent compensation is considered in the federal health care law’s medical loss ratio (MLR) provision.

“The bill … would allow consumers to have access to that very much needed advice and counsel that they receive from health insurance agents,’ Ms. Boyle told the magazine.

A similar bill in the House of Representatives, H.R. 1206, has at least 170 bipartisan cosponsors.

• Listen to the Employee Benefit Adviser podcast.
• Read an Employee Benefit Adviser article on the Senate bill.

"Selling the Insurance Story" - An InsuranceNewsNet Q&A with NAIFA President Robert Miller

In an extensive, broad-ranging interview with InsuranceNewsNet, NAIFA President Robert Miller speaks on such diverse topics as the estate tax, taxation and life insurance, fiduciary proposals for registered reps, the influence of NAIFA, the political landscape in Washington, and the important role NAIFA members play helping Main Street Americans.

"We are a business that develops relationships, and it happens again and again in big cities and small towns across this country.

"We sit down with families and small businesses and discuss issues with them that nobody else wants to discuss. Those issues are if anything happens to a significant partner in this business – let’s say it’s the partner who holds the key to getting bank loans – how are you going to stay in business or if anything happens to the breadwinner in a household, how are you going to be able to educate your children, stay in your house or continue on in a life that you expect to have?

"We bring in those dollars when the going is its toughest. We can’t replace the love of a lost family member, and we can’t replace a significant partner in a small closely held business, but what we can do is bring in money that buys their future.

"Once legislators understand the significance of what we do and they realize that insurance products represent 20 percent of all savings in this country, Congress is set up to make intelligent choices and to understand what potential unintended consequences would be if the rules were changed and families had to buy twice as much insurance in order to get the same kind of protection because they’re taxing the death benefit."

- NAIFA President Robert Miller in InsuranceNewsNet

Read the rest of the Q&A online.

Current tax policy ‘invaluable’ incentive for Americans to invest in financial future

One of the “greatest challenges” we face as a nation is the ability to make smart decisions and create sound policy that effectively will address the U.S. deficit, Sen. Jon Tester (D-MT) told NAIFA members today during the National IFAPAC and APIC Training Meeting in Washington.

Tester, a member of the Senate Banking Committee, said officials need to create policy “that will encourage all Americans to save and make plans for their future.” The current tax rules that apply to insurance and annuity products “have been an invaluable incentive to encourage Americans to make smart decisions in their financial planning.”

Tax treatment of insurance products was among the issues NAIFA members discussed in the nearly 170 meetings held with legislators and their staff during today’s “Day on the Hill” event. Other issues on the agenda included the negative impact the healthcare reform law’s “medical loss ratio” rules have had on the ability of agents to serve their clients; and the important role NAIFA members play in providing advice, services and products to middle market investors and Main Street Americans.

In his remarks, Tester also commented on the following issues:

Department of Labor’s reproposal to define the term “fiduciary”: “The original proposal would have curtailed investors’ ability to receive investment advice. Thankfully the DOL is reconsidering. At a time of uncertainty, this is not the path we should be headed down.”

SEC standard of care:  “As a member of the Banking Committee, I worked to make sure (that Dodd-Frank) provided the right context to standard of care. I did not want to force advisors into a single standard. Efforts to harmonize should result in better protection for consumers … and should not increase costs.”

The role of the insurance agent and financial advisor:  “The role you play is essential to providing peace of mind for families and small businesses, and to keeping communities strong. … You wouldn’t be successful in your jobs unless you cared about advising your clients.”

On Wall Street: “On Wall Street, some went too far in betting against their clients’ interests. Main Street should not have to pay for the sins of Wall Street. Main Street did not cause the (U.S. financial) crisis.”

The State of the Union: A Focus on the Middle Class

A recurrent theme in President Obama’s State of the Union address last night centered on the importance of promoting the financial success of the middle class. The President spoke of “the basic American promise that if you worked hard, you could do well enough to raise a family, own a home, send your kids to college, and put a little away for retirement.”

Of course, these are goals that NAIFA members help their clients achieve with regularity. Most NAIFA members are small business owners located in communities around the country. Nearly 60 percent of their clients have household incomes of less than $100,000. The insurance and financial products, services, and advice they provide help middle class people with nowhere else to turn for these things achieve financial security and prosperity.

Yet increasing regulatory burdens on their businesses at both state and federal levels threaten the ability of these advisors to effectively serve this segment of the market.

NAIFA agrees with the President’s broad statement that “we need smart regulations to prevent irresponsible behavior.” In fact, it echoes the sentiments of NAIFA President Robert Miller, who recently told InvestmentNews, “We're not running from regulation. There is room for intelligent regulation in the marketplace.”

The key is making sure regulations are intelligent (or “smart,” depending on which president’s phrasing you prefer). An SEC fiduciary rule that would endanger the business model that has allowed NAIFA members to successfully help their middle-market investor clients for decades would not be intelligent. A DOL fiduciary rule that would make it more expensive or difficult for people investing for retirement to get professional advice would not be smart. The health care law’s MLR rule, structured in a way that makes it impossible for many insurance brokers to continue customer services to their individual and small business clients, is not intelligent.

NAIFA shares the President’s concern for the well-being of the middle class – in fact, it’s our members’ business! We look forward to working with the administration in the coming year to ensure that regulations affecting NAIFA members and consumers provide needed protections but do not do unintended harm to Main Street America.

NAIFA Encouraged by SEC's Deliberate Pace on Fiduciary

One year after a Securities and Exchange Commission report recommended imposing a fiduciary duty on registered reps, NAIFA remains committed to working with the SEC to ensure that the commission’s final fiduciary rule doesn’t hurt the ability of middle-market investors to receive advice and services.

When the fiduciary proposal arose during the drafting of the Dodd-Frank bill, NAIFA strongly advocated that any SEC fiduciary rule should not threaten the ability of advisors to receive commissions or sell proprietary products. Fortunately, safe harbors in the final Dodd-Frank law preserve these aspects of the business model that currently allows advisors to protect the financial well-being of millions of American families.

Now, NAIFA wants to ensure that the SEC fiduciary rule will not increase compliance and litigation costs for advisors, which in turn would force higher costs for their base of middle-market clients.

“Our biggest worry is that a rule designed to help consumers could wind up doing a lot of harm if it makes the cost of doing business onerous for advisors working with Main Street investors and everyday people saving for retirement,” said NAIFA President Robert Miller. “NAIFA is encouraged by recent signals that the SEC is taking a deliberate approach and preforming a detailed cost-benefits analysis on a proposed fiduciary rule. We’ve seen signs that the commissioners have begun to understand the important role NAIFA members play in protecting the financial well-being of millions of Americans.”

The SEC is expected to request data from industry groups to assist in the cost-benefit analysis and NAIFA officials have expressed a willingness to help.

“At times during this debate, NAIFA has been painted in very broad strokes by people implying we’re opposed to any and all regulation,” Mr. Miller added. “That couldn’t be further from the truth. We favor intelligent regulation that serves a defined consumer-protection purpose and that preserves the ability of American families to obtain affordable financial services and advice.”

Additional Information:

• InvestmentNews, Jan. 15, “It is slow going on fiduciary rule.”
• InvestmentNews, Jan. 16, “How do you put a dollar sign on fiduciary duty?”

Christian Science Monitor Op Ed by NAIFA's Robert Miller: MLR Is Hurting Agents and Consumers

"This month marks a year since Obama's health law put into play one of its lesser known, but most damaging provisions. A rule that amounts to a pay cut for insurance agencies has complicated the lives of millions, reducing the help with claims that these agents provide."

Read the rest on the Christian Science Monitor web site.

Update: SEC Likely to Delay Municipal Advisor Rules

The Bond Buyer newspaper reports that the SEC has said it may delay final implementation of its proposed rules covering “municipal advisors.” The move came one day after 34 lawmakers delivered a letter asking the commission to “scale back” the proposed rules and exempt certain advisors who are already heavily regulated, including registered reps of broker dealers.

According the The Bond Buyer, SEC may wait until September of next year to implement the final rules.

Members of Congress to SEC: Municipal Advisor Rules Go Too Far

As part of the Dodd-Frank Act, Congress asked the Securities and Exchange Commission to ensure that currently unregulated individuals and firms providing securities and investment advice to municipalities are properly regulated. Unfortunately, the SEC has proposed “municipal advisor” regulations that go way too far.

As written, the proposed rules would require financial advisors who are already heavily regulated to be subject to additional overlapping and unnecessary regulation by the SEC if they happen to work with municipal entities. This would include, for example, advisors who administer municipal employee pension plans.

Yesterday, a bipartisan group of 35 members of the House of Representatives sent a letter to SEC Chairman Mary Schapiro urging the Commission to reconsider the proposals. According to the letter, “…the Commission’s proposed rules go far beyond the statute’s intent and scope by capturing, in the ‘municipal advisor’ definition, parties and activities that were not anticipated by Congress or authorized by the statute.”

The Representatives go on to say that the law was intended to affect only municipal advisors who “were not already regulated by a federal or state regulatory body.” Therefore, broker-dealers, registered reps, investment adviser representatives, insurance companies, and others who are already regulated by the SEC, FINRA, state insurance departments, or other established regulatory bodies should not fall within the scope of the rule.

“NAIFA members who advise municipalities are already so heavily regulated that this new layer of rules would do nothing but increase the cost and difficulty of serving their municipal clients,” said NAIFA President Robert Miller. “Some would likely shy away from that type of business. We’re grateful to the members of Congress, both Democrats and Republicans, who have pointed out that the proposed rules go too far, and we are hopeful that the SEC will reconsider.”

The members of Congress ask the SEC to redraft the rules to “define the term ‘municipal advisor’ as Congress intended.”

NAIFA agrees. President Obama pledged earlier this year to reduce the number of redundant federal regulations, so we certainly don’t need the SEC creating new ones. NAIFA would like to thank the Representatives who signed the letter:

Rep. Dold (R-IL) Rep. Biggert (R-IL) Rep. Broun (R-GA) Rep. Campbell (R-CA) Rep. Cuellar (D-TX) Rep. Garrett (R-NJ) Rep. Gibson (R-NY) Rep. Hayworth (R-NY) Rep. Himes (D-CT) Rep. Huelskamp (R-KS) Rep. Huizinga (R-MI) Rep. Jenkins (R-KS) Rep. Kinzinger (R-IL) Rep. Lance (R-NJ) Rep. Lankford (R-OK) Rep. Long (R-MO) Rep. Luetkemeyer (R-MO)

Rep. Manzullo (R-IL) Rep. Matheson (D-UT) Rep. McCarthy (D-NY) Rep. McClintock (R-CA) Rep. Miller (R-CA) Rep. Gwen Moore (D-WI) Rep. Neugebauer (R-TX) Rep. Perlmutter (D-CO) Rep. Peters (D-NY) Rep. Posey (R-FL) Rep. Quayle (R-AZ) Rep. Quigley (D-IL) Rep. Ribble (R-WI) Rep. Schweikert (R-AZ) Rep. Sherman (D-CA) Rep. Stivers (R-OH) Rep. Walberg (R-MI) Rep. Yoder (R-KS)

The Appeal of Annuities

Is the market up or down this week? What’s going on with the European debt? Can Congress agree on, well, anything?

A myriad of factors affects the ability of Americans to save for retirement or make good use of excess income. The equities “roller coaster ride,” “the lost decade,” and similar clichés have entered common parlance among investors, more than a few of whom have watched wild swings in their 401(k) or portfolio balances with growing anxiety.

The Baron Rothschilds of the world may get aggressive when there’s blood in the streets, but for the rest of us stability can be golden. So no one should be surprised by the growing interest in annuity products. Annuities allow investors to manage risk and ensure predictable, guaranteed streams of income for life. About a third of Americans say their biggest worry about retirement is that they will run out of money. That, combined with market volatility and investor skittishness, is making annuities a favored investment option for more people.

Some Lingering Doubts

As NAIFA Past President Terry Headley said in an earlier NAIFA Blog post:

“For a long time, these financial products were in need of some good PR. They certainly had to be sold, and people who could have benefited greatly weren’t always buying. University of Chicago professor Richard H. Thayler and other economists have dubbed this the 'annuity puzzle.' Thayler explains that, by and large, people who purchase annuities receive more annual income for the rest of their lives than those who self-manage their retirement portfolios. A June 2011 report by the Government Accountability Office agrees. The GAO concluded that consumers’ reluctance to buy annuities has proved costly for many people throughout their golden years."

Part of the problem is that annuities can seem complicated to many investors, particularly those who may simply contribute to a 401(k) plan and do not actively manage their investments. Furthermore, the reputation of annuity products has suffered from negative media portrayals, often by personal finance “experts” promoting competing products that do not offer the guarantees annuities provide. Sleazy sales practices of scam artists hocking unsuitable annuity products have also grabbed headlines.

That’s why it’s important for annuity customers to ensure they are dealing with professional, licensed advisors. Membership in a professional organization, such as NAIFA, can be a good indication that an advisor is reputable and dedicated to his or her profession. The National Association of Insurance Commissioners (NAIC) can help consumers confirm that they are dealing with reputable companies and licensed agents.

Increased Consumer Protections

To address the infrequent occasions when unscrupulous salespeople have used annuities to scam unwary investors, NAIFA strongly supports a pair of NAIC model regulations that bolster consumer protection.

First, the Annuity Disclosure Model Regulation standardizes the product information insurance companies give to annuity customers and ensures that the disclosure materials are clear and comprehensive. The regulation requires customers to receive an annuities buyer’s guide, along with information on the riders, early withdrawal penalties, and tax treatment associated with any annuities they purchase.

Second, the NAIC’s Suitability in Annuity Transactions Model Regulation, requires advisors who sell annuities to receive special training and requires them to collect information from a potential annuity client, including the client’s financial situation, tax status, and investment objectives. The advisor must then analyze this information to ensure that the annuity being sold suits the needs of the client. These transactions are reviewable by the advisor’s broker-dealer and regulators.

NAIFA encourages insurance departments in all states to adopt both of the model regulations. While improved regulations and oversight have bolstered consumer protection, many investors remain skeptical or unaware of annuities.

Help Is Available

A professional, established advisor is the best resource for anyone considering an annuity product. An advisor can explain the differences between fixed, indexed and variable annuity products. An advisor can also address consumers’ common questions about annuities, such as potential tax benefits, investment options, payout options (including options that allow a client to receive an annuity and still provide for heirs), and limitations and restrictions.

One word of warning: There is a lot of misinformation on annuities floating around. Several good online resources include:

• CNNMoney’s “Ultimate Guide to Retirement: Annuities” - Answers to 36 common questions about annuities, including sections on fixed, indexed, and variable annuities.

• The Earl E Bird blog – clever, easy-to-understand and entertaining blog for people who don’t mind learning about financial products from a cartoon duck.

• The Securities and Exchange Commission Annuities page – the SEC regulates the sale of variable annuities.

• The American Council of Life Insurers Annuities Page – Available publications include: “A Woman’s Guide to Annuities,” “Individual Annuities: Tips for Seniors,” and “Consumer Tips for Buying a Variable Annuity.”

• “Annuities: Creating Guaranteed Income for Life” – a publication by NAIFA, ACLU, AALU, and NAILBA.